Zillow (ZG)

Online real estate marketplace Zillow (NASDAQ:ZG) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 16.4% year on year to $676 million. Guidance for next quarter’s revenue was better than expected at $650 million at the midpoint, 0.9% above analysts’ estimates. Its GAAP profit of $0.04 per share was $0.01 above analysts’ consensus estimates.

Company Overview

Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ:ZG) is the leading U.S. online real estate marketplace.

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Zillow struggled to consistently generate demand over the last five years as its sales dropped at a 6.6% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Zillow’s annualized revenue growth of 14.1% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Zillow reported year-on-year revenue growth of 16.4%, and its $676 million of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 17.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 14.9% over the next 12 months, similar to its two-year rate. This projection is above average for the sector and indicates its newer products and services will help support its recent top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Zillow’s operating margin has risen over the last 12 months, but it still averaged negative 7% over the last two years. This is due to its large expense base and inefficient cost structure.

Zillow’s operating margin was negative 0.4% this quarter. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Zillow’s full-year earnings are still negative, it reduced its losses and improved its EPS by 37.8% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q3, Zillow reported EPS of $0.04, up from negative $0.09 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Zillow’s full-year EPS of negative $0.14 will flip to positive $0.45.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Zillow has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.4% over the last two years, slightly better than the broader consumer discretionary sector.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Zillow’s five-year average ROIC was negative 4.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Zillow’s ROIC decreased by 1.6 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Zillow is a well-capitalized company with $1.39 billion of cash and $367 million of debt on its balance sheet. This $1.02 billion net cash position is 5.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Zillow beat analysts’ EPS expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.8% to $71.42 immediately following the results.

Updated: December 4, 2025 at 9:24 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Zillow.

Zillow doesn’t pass our quality test. First off, its revenue has declined over the last five years. And while its Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Zillow’s P/E ratio based on the next 12 months is 35.3x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $88.71 on the company (compared to the current share price of $72.70).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.